*Why Nations Fail*, Chapters 5 and 6

Meeting Name: Jagongbi (Let’s Study Liberalism and Soar)

Book Title: Why Nations Fail

Coverage: Chapters 5 and 6

Date and Time: Tuesday, November 12, 2024, 8:30 p.m.

Location: Online, Naver Whale ON

Participants: J, mori, Jayu, Bontureon, Tiberius, Nanuri, Sora, Sakdongi

Written by: mori

Chapter 5. Growth Under Extractive Institutions

“I Have Seen the Future”

- Extractive institutions must create wealth worth extracting.

- Growth under extractive institutions is not sustained growth requiring technological change, but growth based on existing technology.

- One reason the Soviet Union was able to make such major industrial advances was that its industrial technology had been so backward compared with Europe and the United States.

Resource reallocation into the industrial sector was carried out inefficiently and coercively, but because the technological gap was so large, there was ample room for growth.

- Soviet growth was so rapid that many Westerners were misled; so were the CIA and Khrushchev.

- Nobel Prize-winning economist Paul Samuelson’s mistaken prediction:

in the 1961 edition of his university textbook, he predicted that Soviet national income would surpass that of the United States around 1984, and certainly by 1997. In the 1980 edition, he gave 2002 and 2012.

The Limits of Extractive Institutions

- They cannot produce sustainable technological change for two reasons:

lack of economic incentives, and resistance from elites.

- By early 1931, Stalin had already abandoned the idea that he could create socialist men and women who would gladly work without monetary incentives.

- This chapter examines the nature of the institutional reforms that can, under extractive institutions, establish a certain degree of centralization and achieve growth.

- Growth through extractive institutions is necessarily limited, because not only does technological progress fail to keep pace, but such institutions also fuel infighting among competing groups seeking to seize power in order to enjoy the benefits of extraction.

Two Tribes on the Banks of the Kasai River

- The poor Lele tribe vs. the wealthy Bushong tribe

- In 1620, the political revolution of Shyaam led to the construction of the Kingdom of Kuba centered on the Bushong.

- Shyaam did not introduce inclusive institutions, but through extractive institutions that were nonetheless somewhat centralized and enforced law and order, he achieved a certain degree of economic prosperity.

The accomplishments of King Shyaam show that even through extractive institutions, it is possible to achieve a limited but respectable level of economic success.

Such growth requires a centralized government.

Centralization often requires a political revolution.

- Why did the Lele not produce a king like Shyaam?

The contingent nature of history.

The First Agricultural Societies

- Why was it specifically the Natufians who cultivated peas and lentils?

- Sedentary life has disadvantages as well as advantages.

There is no evidence that sedentary life was necessarily more desirable for a group.

- For sedentary life to become possible, hunter-gatherers first had to be forcibly settled,

and that required prior institutional innovation;

through such institutional innovation, political elites who gained power enforced private property rights, maintained order, and extracted resources from members of society through status.

The Natufians’ Institutional Innovation

- Long before they farmed, the Natufians had already developed a complex society characterized by hierarchy, order, and inequality—something that may be regarded as the starting point of extractive institutions.

- The emergence of political elites likely first laid the groundwork for sedentary life and later for the transition to agriculture.

- Sedentary life did not necessarily entail agriculture and animal husbandry.

- In other words, institutional change had likely already occurred before the transition to farming, and this is probably also why people shifted to sedentary life:

as a result of experiencing institutional, social, and political innovations that laid the foundation for the move from sedentary life to agricultural society.

- The reason other regions took longer is that political elites were not allowed to take advantage of such critical junctures.

- The Natufians’ early growth was not sustained for the same reason Soviet growth petered out:

it likely caused serious conflict over who would control the institutions and enjoy the benefits of extraction.

Unstable Extraction

- Maya city-states:

the first Maya cities developed around 500 BC.

The early cities failed in the 1st century AD.

- Maya cities were never unified into an empire.

The Collapse of Maya Civilization

- Warfare over the wealth created by extractive institutions was constant and intensified over time.

- Not only did inequality deepen as a small elite ruled on the back of extractive institutions, but the likelihood also grew of infighting among those who divided up the wealth extracted from the people.

What Went Wrong

- Under extractive institutions, limited prosperity can be achieved while placing its fruits in the hands of a small elite;

such growth requires the centralization of political power.

The desire to centralize political power arises from the possibility of extractive growth.

- But growth through extractive institutions is short-lived.

Internal conflict and instability are inherent features that necessarily accompany extractive institutions from birth.

They not only deepen inefficiency, but often break down centralized political power, and in severe cases completely destroy law and order, plunging society as a whole into chaos.

- China, too, under Communist Party rule, is another example of growth under extractive institutions.

Chapter 6. Institutional Drift

History plays an important role in the process of institutional drift that creates institutional differences.

Even small differences can, through interaction with critical junctures, produce the great currents of history.

But these differences are often so small that they cannot necessarily be described simply as the product of a cumulative process.

How Venice Became a Museum

- Around 1330, Venice had emerged as a city comparable to Paris and three times the size of London.

- A series of contractual innovations moved economic institutions in a more inclusive direction:

the commenda (joint-stock partnership).

- Innovations in political institutions:

creation of the Great Council, creation of the Ducal Council, and the ducal oath delegating and limiting the Doge’s power.

The Serrata of Venice

- In 1315, the Great Council was effectively closed to outsiders, and the early council members became hereditary nobles.

(The adverse effects of bad institutional change appear decades later.)

- The commenda contract was banned.

- In 1314, the government took control of trade, effectively nationalizing it.

- By 1324, private individuals had to pay high taxes to engage in trade.

Long-distance trade became the preserve of the nobility

(a small elite monopolized key businesses).

- By around 1500, the population had fallen sharply to 100,000.

Between 1650 and 1800, Europe’s population grew, but Venice’s population instead declined.

1. Moves toward inclusive institutions can also go backward.

The fact that inclusive institutions can regress means that institutional improvement does not simply accumulate step by step through a straightforward cumulative process.

2. Small institutional differences that play a crucial role at critical junctures are not inherently durable.

Because they are small, they can be reversed, reemerge, and then be reversed again.

- In Rome:

the fall of Rome became a turning point for the development of institutions in Western Europe.

- The fall of Rome led to feudalism,

with side effects including the decline of slavery,

the formation of cities outside the control of kings and nobles,

and, in that process, the successive introduction of political institutions in which the influence of the ruling class was weakened.

The Virtues of Rome

- In 510 BC, the king was expelled and the republic was established.

- King -> consuls / Senate / popular assemblies: a triangular structure of power

- After the founding of the republic, the powers of the popular assemblies remained the same, but the distance between the Senate and the consuls narrowed, upsetting the balance of power.

Conflict between plebeians and patricians intensified;

to ease it, tribunes were elected from among the plebeians

(with the power to veto decisions by the consuls).

This power was won through deviation—namely, strikes by the plebeians, especially the soldiers.

- Economic growth,

flourishing trade through the Mediterranean

The Limits of Virtue

- Slavery became widespread and was highly extractive.

The senatorial elite dominated both the economy and politics.

- Julius Caesar later destroyed the Roman Republic;

in the transition from republic to principate and then to open empire, the partial inclusiveness of the political institutions that had laid the foundation for economic success was damaged.

From then on, Rome entered the path of decline.

The Vices of Rome

- In the late Roman Empire,

Roman elites tried to appease barbarian chieftains.

Often this was not for the purpose of defending Roman territory, but to gain an advantage in internal power struggles.

The Fall of Rome

- The origins of the collapse go back to the moment Augustus usurped power.

- Key elements that had guaranteed political representation for Roman plebeians were removed.

With the centralization of power, the private property rights of Roman plebeians weakened.

- As the empire developed, more and more commoners were reduced to the condition of tenant farmers little different from slaves.

The rights of landlords over tenant farmers also kept increasing.

- In the Roman era, the development and diffusion of new technology were led by the government.

Once the government became indifferent to technological development, conditions changed dramatically.

- There were also fears of the aftereffects of creative destruction.

- The power wielded by Roman emperors to block change was much stronger than that of the ruling class during the republic.

- The prevalence of slavery meant a lack of technological innovation:

the class responsible for production in Rome consisted of slaves,

later joined by tenant farmers of quasi-slave status.

The Case of Vindolanda

- Vindolanda, Rome’s furthest frontier (in England), was an abandoned, collapsed, and backward region.

Yet the Industrial Revolution began here;

England’s development was neither a historically predetermined destiny nor rooted in a deep historical path toward a different outcome.

The Crossroads

- The fall of the Western Roman Empire was a critical juncture:

it led to the formation of feudalism.

- Feudalism at the time was decentralized and openly extractive because of the decline of centralized government.

- Another meaning of feudalism:

as the rural population fell into serfdom, slavery disappeared in Europe,

creating a power vacuum in which independent cities specializing in production and trade could flourish.

- Ethiopia, which developed from the African Kingdom of Aksum:

because it was cut off from the outside world, its indigenous absolutist institutions were not challenged.

- Atlantic trade was also a critical juncture;

in England, the slave trade brought wealth to those opposing absolutism,

but in Africa, it instead helped establish and strengthen absolutist regimes.

- In the Americas, under European colonialism, regions that had once been wealthy became poorer—

a “reversal of fortune”:

the United States and Canada, once far behind the highly developed civilizations of Mexico, Peru, and Bolivia, became rich.

The Impact of Early Growth

- Between the Neolithic Revolution (c. 9500 BC) and the Industrial Revolution in England (late 18th century), there were many episodes of rapid economic growth;

they grew quickly through institutional innovation but ultimately failed, as in the Roman Republic and Venice.

- Rome’s legacy did not directly lead to England’s inclusive institutions or the Industrial Revolution;

institutions develop under the influence of historical factors, but they do not proceed through a predetermined cumulative process.

- History plays an important role in the process of institutional drift that creates institutional differences.

Even small differences can be amplified through interaction with critical junctures and create the great currents of history;

because these differences are often so small, they are frequently reversed, so they cannot necessarily be regarded as the product of a simple cumulative process.

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Original title: <국가는 왜 실패하는가> 5장, 6장

Author: Jayujuui ipmun dokseotoronmoim

Date: 2024-11-12

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=reading01&pn=2&idx=27095